Demand for Dubai office space slumps amid H1 slowdown

Demand for office space in Dubai has receded in the past six months, as the ripple effect of the oil price collapse and the subsequent economic slowdown in the rest of the Gulf reverberates across the city’s commercial property market, according to Cluttons.

Its bi-annual Dubai Office Market Bulletin showed that as firms retrench staff and reconsider their future strategy in the wake of global economic challenges, decisions to acquire, expand or move office space have commonly been put on hold.

This has resulted in an exaggeration of the seasonal summer slowdown throughout late Q2 and early Q3, Cluttons said.

Murray Strang, head of Cluttons Dubai, said: “Free-zone areas have remained in relatively high demand. This includes areas like TECOM’s Dubai Internet City (DIC), Media City (DMC) and Knowledge Village (DKV), DIFC and Dubai Design District (D3), which all contain internationally recognised Grade A space.

"As such, the prime, central areas of these free-zones have very low vacancy rates, of around 5 percent, compared to submarkets such as Sheikh Zayed Road (Trade Centre), which has stock of mixed quality and age, and vacancy rates closer to 20 percent.”

According to the report, rents remained stagnant in the second quarter of 2016, with falls recorded in six of the 22 submarkets. Most declines were seen in areas with higher vacancy rates, particularly of second hand stock, such as Al Barsha (-10 percent), Deira (-5 percent) and Garhoud (-18 percent). Certain submarkets have seen minor uplifts in upper limit rents, including the DIFC (6 percent) and the wider Tecom submarket (7 percent).

Cluttons' research also highlighted that rents are likely to remained subdued in the short-term, although they are not expected to fall much further, particularly as they are at a point where they are considered to be fair market value and landlords appear unwilling to lease below a certain level.